Dish TV (DSTV.BO) Initiation of Coverage  Initiating with Buy: Satellite Success

Asia Pacific  India Cable & Satellite (GICS)  Media - General (Citi)

Company

2 May 2010  32 pages

Equity  Dish TV (DSTV.BO) Initiation of coverage  Initiating with Buy: Satellite Success

 Buy; Target Price of Rs48 — Digitalization of India's cable & satellite market has Buy/Medium Risk 1M reached an inflexion point, driven by acceleration in DTH market growth. We Price (29 Apr 10) Rs35.60 believe Dish TV is well positioned to benefit from its (a) first-mover advantage, (b) Target price Rs48.00 strong distribution/infrastructure, (c) lower cost base, and (d) attractive fixed price Expected share price return 34.8% content tie-ups. We initiate coverage with Buy (1M) and DCF based TP of Rs48. Expected dividend yield 0.0%  DTH subscriber growth on a roll; Dish TV is the leader — We expect the DTH sub Expected total return 34.8% base to double over next 2 yrs to ~32m driven by: (a) investments by 6 corporates Market Cap Rs37,858M resulting in category growth, (b) shift from analog cable, and (c) increase in new US$850M subs from cable dark areas. Dish TV is the market leader with ~7m subs.  Strategic focus shifts to profitability — (a) Dish has changed its focus – mix of calibrated growth & profitability v/s pure growth earlier. (b) While the market will Price Performance (RIC: DSTV.BO, BB: DITV IN) follow, we believe Dish’s superior cost controls stand out – the closest local peer's staff costs are 2.5x, despite similar revenues. (c) Scale benefits and fixed programming agreements will drive better payback – we expect contribution/sub to increase ~60% over FY10-FY12E. At our TP, the stock will trade at ~13x FY12E EV/EBITDA, which is reasonable given the high growth – forecast 26% revenue CAGR (global peers avg.: 7%) & improving EBITDA margins to ~25% by FY12E.

 Balance sheet concerns peaked — While the balance sheet has historically been a concern, we expect recent capital issues (~US$350m) will ensure funding for the next 18 months. Leverage will rise, given the growth, but FCF generation will

improve as growth slows/business achieves scale, from FY12 onwards.

 Consensus likely to lower numbers; but subdued ARPUs in the price — We model near-term pricing pressure (FY11 EBITDA est. is ~17% below consensus), but believe 35% YoY stock underperformance v/s the market prices in the risks. However, volatility around earnings is likely, given risks to consensus estimates. Other risks: Irrational competition & currency (85% of CPE inputs are imported).

Figure 1. Dish TV (Consolidated): Statistical Abstract Surendra Goyal, CFA +91-22-6631-9870 Year to Net Profit EPS P/E EBITDA EBITDA EV/EBITDA Net Revenue ROE P/B Growth Revenues Growth [email protected] (Rs Mn) (Rs) (x) (Rs Mn) (%) (x) (Rs Mn) (%) (%) (x) Aditya Mathur FY2008 (4,141) (9.7) (3.7) (2,128) -22.4% nm 4,128 115.4% nm (3.2) +91-22-6631-9841 FY2009 (4,807) (7.0) (5.1) (1,788) 16.0% nm 7,381 78.8% nm (3.8) [email protected] FY2010E (2,845) (2.7) (13.3) 767 nm 58.0 10,724 45.3% nm 10.6 FY2011E (1,902) (1.8) (19.9) 2,061 168.8% 20.4 13,430 25.2% -72.4% 22.6 FY2012E (158) (0.1) nm 4,189 103.2% 10.4 16,962 26.3% -9.9% 24.9 Source: Company Reports and CIRA Estimates

See Appendix A-1 for Analyst Certification, Important Disclosures and non-US research analyst disclosures.

Citi Investment Research & Analysis is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

Fiscal year end 31-Mar 2008 2009 2010E 2011E 2012E Valuation Ratios P/E adjusted (x) -3.7 -5.1 -13.3 -19.9 nm EV/EBITDA adjusted (x) -19.4 nm 58.0 20.4 10.4 P/BV (x) -3.2 -3.8 10.6 22.6 24.9 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 Per Share Data (Rs) EPS adjusted -9.67 -6.99 -2.68 -1.79 -0.15 EPS reported -9.67 -6.99 -2.68 -1.79 -0.15 BVPS -11.00 -9.42 3.37 1.58 1.43 DPS 0.00 0.00 0.00 0.00 0.00 Profit & Loss (RsM) Net sales 4,128 7,381 10,724 13,430 16,962 Operating expenses -7,827 -11,458 -13,133 -15,052 -16,838 EBIT -3,699 -4,077 -2,409 -1,622 124 Net interest expense -469 -737 -516 -375 -510 Non-operating/exceptionals 34 13 80 95 210 Pre-tax profit -4,134 -4,801 -2,845 -1,902 -176 Tax -7 -6 0 0 18 Extraord./Min.Int./Pref.div. 0 0 0 0 0 Reported net income -4,141 -4,807 -2,845 -1,902 -158 Adjusted earnings -4,141 -4,807 -2,845 -1,902 -158 Adjusted EBITDA -2,128 -1,788 767 2,061 4,189 Growth Rates (%) Sales 115.4 78.8 45.3 25.2 26.3 EBIT adjusted -56.6 -10.2 40.9 32.7 107.6 EBITDA adjusted -22.4 16.0 142.9 168.8 103.2 EPS adjusted -72.5 27.7 61.7 33.1 91.7 Cash Flow (RsM) Operating cash flow -247 -2,761 610 2,812 5,896 Depreciation/amortization 1,570 2,289 3,176 3,683 4,065 Net working capital 2,323 -241 279 1,031 1,989 Investing cash flow -2,885 -6,034 -5,373 -6,049 -5,654 Capital expenditure -2,885 -6,034 -5,373 -6,049 -5,654 Acquisitions/disposals 0 0 0 0 0 Financing cash flow 3,515 9,090 11,107 0 -500 Borrowings 3,515 6,047 -1,792 0 -500 Dividends paid 0 0 0 0 0 Change in cash 384 294 6,344 -3,237 -258 Balance Sheet (RsM) Total assets 12,448 21,414 31,514 32,199 35,318 Cash & cash equivalent 511 805 7,149 3,913 3,654 Accounts receivable 403 526 734 920 1,069 Net fixed assets 9,599 13,345 15,541 17,907 19,496 Total liabilities 17,159 27,889 27,936 30,523 33,800 Accounts payable 0 0 0 0 0 For further data queries on Citi's full coverage universe Total Debt 5,445 11,492 9,700 9,700 9,200 please contact CIR Data Services Asia Pacific at [email protected] or +852-2501- Shareholders' funds -4,710 -6,475 3,579 1,676 1,518 2791 Profitability/Solvency Ratios (%) EBITDA margin adjusted -51.6 -24.2 7.2 15.3 24.7 ROE adjusted na na na -72.4 -9.9 ROIC adjusted nm -183.5 -46.5 -23.8 1.9 Net debt to equity na na 71.3 345.2 365.3 Total debt to capital 741.2 229.0 73.1 85.3 85.8

2 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010 Contents

Initiate with Buy: Target Price of Rs48 4 Valuation 6 Company Overview 8 Industry Overview & Opportunity 9 Competitive Positioning & Strategy 14 Earnings on a Steep Uptrend 17 Risks 23 Annexure 1: Financial Statements 24 Annexure 2: Key Management Personnel 27 Dish TV 28 Company description 28 Investment strategy 28 Valuation 28 Risks 28 Appendix A-1 29

3 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010 Initiate with Buy: Target Price of Rs48

Investment Thesis

Digitalization of India's cable and satellite Dish TV is the leader in Direct to Home (DTH) satellite broadcast operations in markets has reached an inflexion point on India, benefiting from the high growth in the digitization of the cable & satellite the back of high DTH market growth market. We initiate coverage with a Buy/Medium Risk (1M) rating.

Aggressive investments behind the DTH category have accelerated subscriber

growth. The market is growing with (a) conversions from analog cable and (b) new subscriber additions in cable dark areas. Dish TV will benefit from its first Dish TV is well positioned to benefit from mover advantage, superior infrastructure and good distribution. We believe its first mover advantage, strong Dish TV is now in a sweet spot with a good scale (gross subscriber base of distribution & infrastructure and lower ~7m), attractive content tie-ups and adequate funding (post GDR/rights). cost base Management focus has shifted from 'growth' to 'profitable growth' – SAC (subscriber acquisition costs) has come down a little from the peak.

We believe management focus now seems We expect ~26% revenue CAGR over FY10-12E on the back of strong growth in to be on profitability also, rather than only number of DTH subscribers. Dish TV's revenue growth rates are higher - global subscriber growth peers average around ~7% CAGR over the same period.

Figure 2. Dish TV – Gross and Net Subscribers Base (mn) Figure 3. Dish TV – Net Revenues and Revenue Growth Trends (Rs M, %)

12.0 18,000 180% 11.1 16,962 171% 16,077 16,000 160% 10.0 9.1 14,000 13,430 140% 8.3 12,607 8.0 12,000 120% 7.1 10,724 6.9 10,019 10,000 83% 100% 6.0 5.7 5.1 8,000 7,149 7,381 80% 4.3 4.0 6,000 60% 3.0 3,8984,128 2.5 4,000 40% 40% 28% 2.0 1,916 26% 2,000 1,438 20%

- - 0% 2008 2009 2010E 2011E 2012E 2007 2008 2009 2010E 2011E 2012E DTH Revenues (Rs Mn, LHS) Overall Revenues (Rs Mn, LHS) Growth in DTH Revenues (%, RHS) Net Subscibers (m) Gross Subscribers (m)

Source: Company Reports and Citi Investment Research & Analysis estimates Source: Company Reports and Citi Investment Research & Analysis estimates

Competition may put pressure on ARPUs in the near-term. Our estimates factor in some decline in ARPUs on YoY basis in FY10E/11E, before a slight pick up in FY12E. We think as the DTH market achieves scale, we expect pricing to improve and operating leverage to flow through. Our ARPU estimates are lower than street/industry due to (a) High competition for market share in near term; (b) Value added services (VAS) taking longer than expected to ramp up.

Dish TV's superior cost management in the current competitive environment ensures an EBITDA break-even during FY10E and PAT break-even by 2HFY12E. We forecast a robust ~150% EBITDA CAGR over FY10-12E.

The stock underperformance of ~35% YoY We believe that the current consensus estimates may be too aggressive for largely factors in subdued pricing over the FY11E, which may lead to some stock price volatility near the quarterly results. near term However, the stocks' underperformance vis-à-vis the broad market (~35% over the last one year, ~25% over the last quarter) prices in near term challenging environment, in our view.

4 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

We forecast healthy 26% revenue CAGR Figure 4. Dish TV – EBITDA and EBITDA Margin Trends (Rs Mn, %) over FY10-12E v/s ~7% global C&S average with EBITDA margins expanding 5,000 30% ~1750bps to ~25% by FY12E 25% 4,189 15% 4,000 20% 7% 10% 3,000 2,061 0% 2,000 -10% 1,000 767 -24% -20% - -30% (1,000) Lower content and others costs should -40% ensure EBITDA turnaround in FY10E and (2,000) -52% PAT break even in 2HFY12E (1,738) (1,788) -50% (2,128) (3,000) -60% 2007 2008 2009 2010E 2011E 2012E

EBITDA (Rs Mn, LHS) EBITDA Margin (%, RHS)

Source: Company Reports and Citi Investment Research & Analysis estimates

Post the capital infusion, management The recent fund raisings (rights issue & GDR issue to Apollo Management) to has adequate capital for subscriber the tune of ~US$350m have improved Dish TV's balance sheet profile. We acquisition and growth over the next 18 model in increasing leverage as robust growth rates continue – leverage will months decline as FCF generation becomes strong due to slowing growth/critical size.

We use a Discounted Cash Flow analysis as our primary valuation methodology, which results in a target price of Rs48 (details in valuation section). At our target price, the stock will trade at 13x FY12E EV/EBITDA, which we think is reasonable given: (a) high growth in the business, (b) Improving margin profile – we expect margins to hit ~25% in FY12E, and, (c) Positive FCF FY12E onwards as the business achieves critical size.

Figure 5. Global C&S Companies – EV/Sales vs. Revenue Growth Figure 6. Global C&S Companies – Market EV/sub for Global Peers

FY11 EV/Sales US$

3.5 3,000 2,734 Sky NZ Dish TV 3.0 2,500 Austar 2,187 1,971 2.5 ASTRO 2,000 Cablevision 1,715

2.0 Comcast Corp 1,500 BSkyB 1,026 1,107 1.5 DIRECTV 1,000

500 1.0 DISH Network US 160

0.5 - Dish TV DIRECTV ASTRO BSkyB DISH Austar Sky NZ

- Network US (4.0) - 4.0 8.0 12.0 16.0 20.0 24.0 28.0 Net Sales CAGR (FY10-12E)

Source: Company Reports and Citi Investment Research and Analysis Source: Company Reports and Citi Investment Research and Analysis

5 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010 Valuation

Given net losses and negative FCF, valuation methodology/approach is a key is focus area for investors. Near term profitability will be depressed, as Dish TV remains in investment mode, we are not adopting equity multiples approach as our primary valuation methodology as the near term financials do not reflect true business potential. We use Discounted Cash Flow (DCF), although we fully appreciate that this method is very sensitive to different assumptions, and a large part of the value would be attributable to terminal value of the business. We check this analysis with EV/EBITDA multiples two year forward, assuming that in FY12E, the business is closer to reaching steady state on profitability.

DCF based valuation

Our DCF based valuation results in a Our Discounted Cash Flow (DCF) analysis methodology, which results in a target price of Rs48 per share target price of Rs48 (Sept 10E) is based on WACC = 11.7% and g = 4.5%. Summary of our DCF analysis is shown below.

Figure 7. Dish TV (Consolidated) – Discounted Cash Flow Analysis

Historic Historic Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 -1 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Historic Explicit Forecasts - 5 years Fade period - 7 years (In Rs Mn) Revenue 7,381 10,724 13,430 16,962 20,550 24,179 27,724 31,386 35,075 38,690 42,116 45,233 47,925 50,082 Revenue growth (% YoY) 116.5% 78.5% 45.3% 25.2% 21.2% 17.7% 14.7% 13.2% 11.8% 10.3% 8.9% 7.4% 6.0% 4.5% EBIT -4,077 -2,409 -1,622 124 1,439 2,418 3,604 4,304 5,061 5,859 6,678 7,496 8,284 9,015 EBIT Margin (%) -55.2% -22.5% -12.1% 0.7% 7.0% 10.0% 13.0% 13.7% 14.4% 15.1% 15.9% 16.6% 17.3% 18.0% Tax paid 6 0 0 -18 86 193 360 646 759 1,172 1,670 2,249 2,485 2,704 Depreciation/amortisation 2,289 3,176 3,683 4,065 4,617 5,069 5,397 5,685 5,879 5,962 5,920 5,747 5,441 5,008 Change in working capital 241 -279 -1,031 -1,989 -897 -907 -886 -915 -922 -904 -856 -779 -673 -539 Net capital expenditure 6,034 5,373 6,049 5,654 5,617 5,642 5,914 6,188 6,347 6,375 6,257 5,988 5,568 5,008 Free cash flow -8,070 -4,326 -2,956 542 1,249 2,559 3,612 4,072 4,756 5,178 5,528 5,785 6,344 6,849

WACC 11.7% Total value of firm 53,349 Less: net debt (cash) 2,551 Total Equity Value (Rs Mn) 50,653 No of shares outstanding (m) 1,063

Value per share (Rs) 48 Source: Company Reports and Citi Investment Research & Analysis estimates

At our target price, the stock will trade at Our valuation implies 13x FY12E EV/EBITDA as a check. We think the 13x FY12E EV/EBITDA, which is EV/EBITDA multiple is reasonable given the sharp turnaround in operating reasonable given the high growth, profits over the coming years. Dish TV currently trades at ~10x FY12E improving margin profile and strong FCF EV/EBITDA, which is lower than the multiples observed for other global peers generation FY12E onwards during their growth period. Comparing Dish TV to the trends seen in the DISH Network US stock a decade ago, we see that multiples are inflated in the period of high growth. As DISH Network's EBITDA rose from -US$154m to ~+US$1.04bn over FY00-03, multiples averaged 14-15x one year forward through the turnaround phase.

Closer home, telecom major, EV/EBITDA multiples for Bharti Airtel during its turnaround phase (PAT break even in FY04) were around ~12x.

6 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

Figure 8. Dish Network US – One Year Forward EV/EBITDA (x) Trend Figure 9. Bharti – One Year Forward EV/EBITDA Band Chart (x)

600 x 12x 20 EV/EBITDA multiples post 500 turnaround are elevated during growth phase 10x 16 400 8x 12 300 6x

8 200

4 100

0 0

Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 02 03 04 05 06 07 08 09 10 b- b- b- b- b- b- b- b- b- Fe Fe Fe Fe Fe Fe Fe Fe Fe

Source: Bloomberg, Company Reports and Citi Investment Research & Analysis Source: Bloomberg, Company Reports and Citi Investment Research & Analysis estimates estimates

On EV/Sales basis, the stock will trade at 3.8x FY11E and 3x FY12E at our target price, which is at a premium to current global peers multiples, trading between 1-3x We think this is justified given the superior net revenue growth outlook (~26% CAGR over FY10-12E for Dish TV v/s. global C&S average of ~7%).

Figure 10. Global Cable & Satellite Comparables

Company RIC CIRA Mkt cap CMP TP P/E (x) EV/EBITDA (x) EV/Sales(x) P/BV (x) Div. Yield (%) Name Code Rating (US$m) (LC) (LC) FY11E FY12E FY11E FY12E FY11E FY12E FY11E FY12E FY11E FY12E Satellite ASTRO AAAN.KL 2M 2,593 4.24 4.30 33.0 26.2 10.3 9.5 2.4 2.3 9.3 8.3 2.7% 3.1% BSkyB BSY.L 1M 16,787 6.25 7.00 16.1 12.6 8.5 6.8 1.9 1.6 12.3 7.9 3.3% 3.7% DISH Network US DISH.O 1M 9,923 22.23 24.00 11.1 10.7 4.2 3.7 1.0 0.9 (10.2) (222.3) 0.0% 0.0% DIRECTV DTV.O 2M 33,679 36.54 38.00 14.8 11.1 5.7 5.3 1.5 1.4 32.0 107.2 0.0% 0.0% Austar AUN.AX 2M 1,355 1.16 1.24 21.0 16.8 7.8 6.8 2.7 2.5 (5.5) (8.2) 0.0% 0.0% Sky NZ SKT.NZ 2M 1,396 4.96 5.04 18.1 15.8 7.9 7.2 3.1 2.9 1.5 1.5 3.4% 3.9% Cable Comcast Corp CMCSK.O 1M 55,650 20.00 23.00 14.1 10.9 5.7 5.0 2.1 1.6 1.2 1.1 1.6% 2.2% Cablevision CVC.N 1M 8,389 27.45 27.00 17.0 14.9 6.7 6.3 2.4 2.2 (1.7) (1.9) 0.0% 0.0% Source: Powered by dataCentral

EV/ sub for Dish TV is around US$160 FY11E (Rs7.1bn). In contrast, regional peer, Astro is at EV/sub of ~US$1100 and global developed market C&S players' trade between US$1000 –US$2700/subscriber respectively. While we provide a table of EV/subs below, we don’t think the comparison is very relevant as ability to monetize (and hence ARPUs/profitability) in various markets is different and hence not comparable.

7 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010 Company Overview

Dish TV is the leader in India's DTH Dish TV is the first private company to provide Direct to Home (DTH) satellite market, with around 7m subscribers broadcast operations in India. The company has a strong backing of the Essel (current market share of ~35% in a six Group, the parent company of the Zee Network. Dish TV was formed by de- player market) merger of direct consumer businesses of Zee Entertainment and merger of Siti Cable and New Era Entertainment in 2006.

We believe that the Indian DTH industry is set for high growth over the medium term, driven by aggressive investment of all players behind category growth. Riding on a first mover advantage, Dish TV is the market leader, with ~7m DTH subscribers, (we estimate their current market share to be ~35%), being offered over 250 channels and services. The company has a wide distribution network with more than 800 distributors and ~48000 dealers.

Dish TV's business involves the distribution of various TV and audio/video channels to subscribers. This transmission is enabled through satellite equipment installed at the end consumer premises wherein a subscriber can directly receive the programming from the satellite, through a mini dish, which is then de-coded by a digital receiver (set-top-box).

The process eliminates the need of any intermediary or local cable operator. Direct access to the last mile puts DTH operators like Dish TV in a strong position.

Besides, DTH subscription revenues, Dish TV also provides value added services like Electronic Program Guide, Video on Demand, Active services, etc.

DTH related revenues constitutes ~97% Additionally, Dish TV is also in the business of providing teleport services of overall net sales (as of FY09) (uplinking and space segments) to the broadcasters of various channels. The remaining businesses contribute only ~3% of the revenues as of FY09.

Management & Shareholding Figure 11. Dish TV – New Shareholding Structure Mr Subhash Chandra and Mr Jawahar Lal Goel from the promoter family lead the company as Chairman and the Managing Director respectively. Mr Rajeev Dalmia, Apollo Management, the CFO has a strong finance and accounting background. Refer Appendix 2 for 11.0% details on the key management personnel.

Public, 12.8% In November 2009, the company announced infusion of US$100m through issue of GDRs to Apollo Management. Apollo Management has a reasonable exposure in FIIs, 5.6% India media and satellite business – already had a director on the board of Dish Promoters & DIIs, 5.8% Promoter TV for more than two years. Group, 64.8% Management mentioned that all the money raised from the recent rights issue has already come in. Source: Company Reports and CIRA The adjacent figure shows the shareholding structure post the recent capital raising. Promoter group's share is around ~65% and Apollo Management garners ~11% share of the expanded equity share base.

8 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

Industry Overview & Opportunity India Gets Digital

We expect high growth rates in the DTH Broadcasting in India is in the midst of a big change, wherein the digital pay TV market over the medium term driven by market is at an inflexion point and a rapid growth is expected over the next few the aggressive investments by all players years. We expect high growth in the Direct-to-Home (DTH) category over the medium term driven by the aggressive spends by all players. Corporates like Sun Direct, Bharti Airtel, Reliance Communications and Videocon, together with incumbents Dish TV and Tata Sky are investing in the DTH market.

DTH to drive Digitalization

We see the DTH market growth opportunity at three levels:

 Consumers are shifting to digital media from the current analog regime as superior technology is now available at affordable prices.

 DTH is now spread to new geographies (rural areas, remote locations), which have been cable dark until now; i.e. only having access Free to Air channels.

 At a broader level, TV penetration in India is only about 60% of households. As the economy and income levels rise, this segment (90m households) should potentially add to the opportunity.

We estimate the DTH market is likely to cross ~32m subscribers in India by end of CY11 from ~16m subscribers in end CY09. About 3 years ago, DTH market was growing at 50,000 subs additions/month; compared to the ~0.5m subs additions/month run rate observed over the recent past. While we view the sub addition rate is near peak levels and expect it to come off as the market achieves critical mass, we believe that spends and promotions by the DTH players would ensure sustained market growth over the medium term.

Near-term growth in DTH subscribers will Our discussions with many industry participants reveal that a large number of be boosted by the large sports calendar in sports events (IPL Season 3 & 4, T20 cricket World Cup, cricket ODI World FY11 Cup, FIFA Soccer World Cup and Commonwealth games, etc) in FY11E are likely to have a positive impact on the DTH subscriber growth.

CIRA India Pay TV Market Model

Our key assumptions are:

 3% CAGR in the number of TV households over 2009-15E; with almost 7% CAGR in the number of cable & satellite (C&S) TV households over the same six-year period;

 22% CAGR in the number of DTH households over 2009-15E to ~53m households (i.e. ~40% of C&S homes by 2015);

 We expect the number of analog subscribers to decline due to cannibalization to DTH or digital cable. CIRA model forecasts a de-growth of -4% over 2009-15 in analogue cable subscribers;

9 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

 Of the digital subscribers, we think DTH households are likely to exceed the number of non-DTH digital (digital cable) households in India going forward. This has unlike global trends where digital cable seems to have done better than DTH over a prolonged period. In India, given the disproportionate investment behind DTH, we would be surprised if digital cable share would exceed the DTH segment going forward; and

 Growth in ARPUs is likely to remain muted— we estimate ~2% CAGR over 2009-12 and then a 7% CAGR over 2012-15. We think it will be difficult for ARPUs to appreciate meaningfully in the near term given heightened DTH competitive activity and the benchmark set by cable players. We note that the street and DTH operators believe that the ARPU increase should be higher given the increasing proportion of value-added services, but we choose to remain conservative and would await further data points.

CIRA Pay TV model for the Indian market Figure 12. India Pay TV Model indicates ~32m DTH households by CY11; i.e. almost double in two years 2009E 2012E 2015E No of HHs (m) 221 232 242 No of TV HHs (m) 130 145 158 TV Penetration 59% 62% 65% No of C&S HHs (m) 93 119 136 C&S Penetration 72% 82% 86% No of Analog HHs (m) 73 63 56 Penetration as % of C&S HH 79% 53% 41% No of Digital HHs (m) 20 56 80 Penetration as % of C&S HH 21% 47% 59% No. of DTH HHs (m) 16 38 53 Penetration as % of C&S HH 17% 32% 39% No of non-DTH digital HH 4 18 28 Penetration as % of C&S HH 4% 15% 20%

ARPU – DTH (Rs) 145 152 186 3 year CAGR 2% 7% DTH market size (Rs Mn) 27,275 69,185 117,905 3-year CAGR 36% 19% Source: Citi Investment Research & Analysis estimates

Where is the Indian market headed?

Unlike global trends, we think the DTH Cable in India is still mostly analog. However, with the ongoing DTH ramp up, share will exceed that digital cable in some cable operators are voluntarily shifting to digital platform to remain in India over the long term business. The cable industry is very fragmented with a large number of players, most of which lack scale, capital and expertise to operate at a broad level and compete with the large/national DTH players. Given disproportionate investments behind DTH by large corporates, we expect it to garner higher penetration going forward.

The rate of growth in digital cable India is not as strong as the growth in the DTH market — digital cable subscriber base has doubled to around ~4m over the past 2-3 years; whereas the number of DTH subscribers has accelerated more than 5x to ~16m households (as of Dec09) over the same period.

Expectations around HITS changing the face of digital cable seem to have fazed out with the Essel group (only HITS provider) recently deciding to discontinue HITS operations given the unclear regulatory environment. The roll out was slow given the lack of clarity on the tariff/content policy and challenges around converting cable operators, which made these economically unviable. 10 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

There have been some questions post the recent IPOs of Den Networks and Hathway as some investors believe the capital infusion strengthens the market positioning of these MSOs. While this is true to some extent, as both the issues plan to use ~Rs1.6-2bn towards the expansion of digital cable; we think there still a large capex required by the industry as a whole for digital cable infrastructure and subscriber addition.

Commercial IPTV has been launched, although it is still early days for this technology in India.

DTH: High Competitive Intensity, but Early Signs of Easing

Increased competitive intensity with six large corporates has translated into rapid growth in subscribers. Dish TV and Tata Sky were the first to enter the market, followed by Sun Direct, Bharti's Digital TV and RCOM's Big TV. Videocon recently launched DTH services in CY09. DD Direct, state owned- Doordarshan's non-commercial DTH venture, has ~6-7m subscribers, as per to press reports.

Figure 13. DTH Operators – Details

Operator Ownership Details Launch Date Market Share (approx) Dish TV Public Company 2003-04 35% Tata Sky Private Company (JV between the TATA Group and STAR) Aug-06 22% Sun Direct Private Company (80:20 JV between Sun TV promoters and Astro) Dec-07 20% Big TV Part of RCOM Aug-08 10% Digital TV Part of Bharti Airtel Oct-08 12% Videocon Marketed by BBCL Apr-09 1% Source: Industry, Citi Investment Research and Analysis

With attractive pricing and a wide About 2-3 years ago, there was push back from cable customers to shift to DTH spectrum of channels on offer (160-200 as the number of channels on offer was limited and price differential via-a-via channels tie up), the demand for DTH is local cable was significant. Demand scenario has improved a lot since then, as now on a rise the technology is now available a lot cheaper and operators have tied up with ~160-200 television channels.

DTH companies are offering hardware subsidies, reduced both installation charges as well as monthly subscription fees in attempts to add new customers. Over the last year, there were schemes by players like Sun Direct offering basic services at as low as Rs99. Thus, customer acquisition cost had risen sharply in FY09 as all players were into price wars in an attempt to maximise share. However, Dish TV has managed to stabilize these expenses – the quantum of subscriber acquisition had been balanced with costs – subscriber acquisition costs are down in absolute terms by ~13% from peak levels of the last fiscal.

11 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

Hardware subsidies, promotional offers Figure 14. Dish TV – Subscriber Acquisition Cost (Rs/sub) and heavy discounts led to a sharp rise in industry costs of acquisition per subscriber in the past....

2900 2,832

2700 2,634 2,635 2,601 2,505 2,487 2,477 2500 .... However, Dish TV's focus on profitability is visible with reduction 2300 (around 13%) in subscriber acquisition costs from peak levels 2100 1920 1900

1700

1500 FY08 1Q FY 09 2Q FY 09 3Q FY 09 4Q FY09 1Q FY 10 2Q FY 10 3Q FY 09

Source: Company reports; Note: Subscriber Acquisition cost includes (1) Subsidy on Set Top Boxes (STBs), (2) 80% of marketing expenses, (3) Commission to dealers

Operators would depend on their ability to up sell value-added services (VAS) in addition to the basic channels package for any pricing growth. This will be a challenge over the medium term in the current six player market, in our view. Figure 15. Avg. Monthly ARPU Comparison Rights to exclusive content like, the Premier League makes Sky a lucrative

Rs option in UK as it enhances the competitive positioning. As per the 250 management, VAS contributes as much as 20% of revenues in markets like US. 200 Newer entrants (Sun Direct, Big TV) are offering a number of low cost value 150 packages, which have a lower proportion of pay channels. New players like Sun 100 Direct have been more aggressive on growing subscribers, and consequently

50 have lower ARPU of ~Rs100 (v/s ~Rs135-140 for Dish TV). However, on a sequential basis, there has been some easing in competitive intensity as new 0 Dish TV Tata Sky Sun Direct Digital TV Big TV operators follow the incumbents (Dish TV) by slowly shifting focus to bottom line – Sun Direct's ARPU have moved up from Rs83 to ~Rs100 QoQ as they reduce the subs addition growth rates over the last four months. Source: Forbes, Industry Reports ARPUs in India remain low at ~US$3-4, compared to rest of Asia (ARPU range from ~US$13-30). Industry participants believe the ARPUs may increase significantly, as the market garners scale, and rationale pricing would resume in some time and also as value-added services kick in. We think the Video on demand, Active services, introduction of adult content, exclusive content, etc may provide growth in pricing, but only over the medium to long term, once the optimal subscriber reach has been achieved. We believe that the once the current phase of rapid subscriber penetration is over, monetization opportunity from such avenues is possible.

12 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

Competition may put pressure on pricing Figure 16. DTH Operators – ARPU Trends (Rs/month): Comparing Industry Reports & CIRA Views in the near term; however, as the market achieves scale, we expect ARPUs to 250 improve and operating leverage to flow Market expects a sharp improvement in ARPUs beyond 2010; whereas we think aggressive competition would put pressure on ARPUs in the near term through 211

200 189 172 165 165 169 159 160 152 150145 150 145 150 141

100

0 2008 2009 2010E 2011E 2012E 2013E 2014E FICCI KPMG Report, 2010 CIRA estimates

Source: KPMG-FICCI India Media & Entertainment Report, 2010 and CIRA estimates

Over the long term, as the market We also believe that ARPU growth forecasts may not be linear in nature. As achieves scale, ARPUs may improve observed over the last quarter, as Sun Direct moderated its pace of growth of subs addition from 0.5m to 0.1m, the operators' ARPUs sharply increased QoQ from Rs83 to ~Rs100. We believe as the industry achieves critical mass and operators focus on the bottom line, ARPUs may witness a step up in growth.

Key Regulations

Some key regulations for the DTH industry include:

 The foreign investment limit is 49%, with a sub limit of a maximum 20% for Foreign Direct Investment (FDI).

 License Fee is at 10% of subscription revenues. There is a proposal to reduce it to 6%.

 It is imperative for operators to provide content of all broadcasters. However, there is flexibility in terms of individual pricing.

 Some states impose an additional entertainment tax of ~10-12%. Dish TV management in the last quarter conference call highlighted that entertainment tax was around 3% of the subscription revenue.

GST roll out is likely to benefit DTH players as it simplifies the multiple central & states taxes into one. DTH operators believe that while financial impact would depend on the finally decided tax rates, it will simplify administrative processes/operations given the multiple taxes currently imposed on the sector.

DTH operators have formed an association to address different industry issues. Some prominent steps to aid industry growth would include reduction in license fee to 6% (from 10%) and reduction in CENVAT to ~4% levels.

13 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010 Competitive Positioning & Strategy

First mover advantage

Dish TV's strong market positioning  Dish TV enjoys the first mover advantage, with the largest share (~35%) of provides benefits for favourable terms the market. The company can leverage upon its position – avails attractive with content providers and equipment content tie-ups and good terms with equipment suppliers. suppliers  As more players enter and invest in educating consumers on the merits of the technology, Dish TV would be in a position to reap the benefits of rapid market expansion.

 Since the business requires critical scale to be profitable, Dish is in a better position than peers on the route to profitability/FCF generation.

Lower costs/scale to drive margin expansion

 Dish TV, like most companies in the Essel Group, has significant focus on cost control. Group company, Zee Entertainment (ZEEL) has demonstrated strong cost management skills over the past year – aggressive cost management led to a strong margin expansion, without much impact on viewership.

 DTH operators have been entering fixed rate contracts with broadcasters; i.e. the broadcasters only receive a fixed fee, irrespective of the DTH subscriber growth. Our discussions with management indicate that the company has moved from a variable costs system on a per subscriber basis to a fixed cost regime with most (>90%) broadcasters, to control content costs. As per the management, most of these agreements are for 1-3 years duration.

 Despite aggressive competitive activity, Dish TV has managed to reduce staff and other SG&A costs in absolute terms over the last fiscal.

 Its strong positioning gives Dish TV good bargaining power with content providers and CPE suppliers.

Comparing Dish TV with Tata Sky

Investors might look at benchmarking Dish TV to Tata Sky (unlisted), peer in the fast-growing DTH market. Other players (Sun Direct, Digital TV, Big TV, and Videocon) entered the market at a later stage and thus may not be strictly comparable.

Detailed financial data is not available for any DTH operator, except Dish TV; however, we highlight some of the key metrics in the table below:

14 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

Despite a similar revenue base, Tata Sky's Figure 17. Dish TV and Tata Sky – Comparison staff costs are ~2.5 times that of Dish TV; Other Expenses is also higher FY09 Dish TV Tata Sky

Sales (Rs bn) 7.4 8.0 Approx ARPUs (Rs/month) 146 200 Programming & Content Costs (Rs bn)* 5.4 10.8 Staff Costs (Rs bn) 0.4 1.0 Other SG&A (Rs bn) 3.5 5.4 EBITDA (Rs bn)* (1.9) (9.2) Depreciation & Amortization (Rs bn)* 2.2 1.3 EBIT (Rs bn)* (4.0) (10.5) PAT (Rs bn)* (4.8) (11.5) Carry over losses till FY09* (Rs bn) 9.7 29.0 Source: Company Reports, CIRA estimates; *Not comparable given CPE write off policy

We note that despite, a lower sub base, Tata Sky net revenues are comparable with Dish TV given higher ARPUs (in excess of Rs200/month). Despite a similar revenue base, staff costs and other SG&A for Tata Sky are higher by ~160% and ~55% respectively in FY09. Part of it could also be due to some sharing of resources within the group given the Essel group has multiple media companies. The comparison suggests that Dish TV's operating margins are buffered by almost ~6ppt due to a better control on staff and SG&A costs.

The financials at the EBITDA level are not comparable given a variance in consumer premise equipment (CPE) write off policy. Dish TV capitalizes CPE and writes it off over 5 years; whereas Tata Sky expenses this in the first year.

Strong distribution network

 The company has a good distribution network in place over the years with currently more than 800 distributors and 48,000 dealers present across 6,600 towns.

 Dish TV has over 350 Dish Care Centers (DCCs) & service franchisees, about 600 ‘Dish Shoppes’, offering customer care in 11 different languages through call centers.

Figure 18. Dish TV – Distribution Network

Source: Company Reports

15 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

 Dish has also undertaken certain other steps to expand its reach in Multi Dwelling Units (MDU), through modern trade and wholesaling the product offering to their mass corporate scale.

Solid Infrastructure

 Dish TV has a total of 10 transponders (four 54 MHz transponders and six 36 MHz transponders), each having the capacity to host at least 15 channels.

 The company partnered with well known software providers, including Open TV (middle ware), CONAX (encryption & authentication), SCOPUS (compression systems) and HARRIS (automation and broadcasting software).

Figure 19. Dish TV – Different Packages on Product offering and Marketing Offer  Dish TV offers varied consumer offerings where the Basic package scheme Pack Type Charges or ones with additional number of channels (Silver, Gold, Platinum, Titanium Popular Packs packs). Language-based, genre-based or a la carte channel options are also Silver Rs. 125 per month being offered. Silver Saver Rs. 150 per month Gold Rs. 210 per month  In addition to basic services, Dish offers interactive and value added Gold Saver Rs. 270 per month services. While we don't think much premium is warranted in this phase of Platinum Rs. 325 per month Other Packs the market, these may have potential of being long-term growth drivers: Child Rs. 170* per month Titanium Rs. 3590 per annum – Movie on Demand Source: Company, CIRA – Gaming options

– Electronic Program Guide (EPG) with additional features like programme alert, parental lock, channel sorting, favourite lists and so on

– Active features like Sports Active, News Active, Mosaic Active features

– Multi Lingual Audio Feed

Figure 20. DTH Operators – Comparison by Number of Channel Tie Ups & Services

Operator Channel Tie Ups Services Dish TV 234 16 Tata Sky 165 17 Sun Direct 219 1 Big TV 198 37 Digital TV 189 20 Videocon 183 4

Source: Company reports

16 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010 EBITDA on a Steep Uptrend

~26% Net Revenue CAGR over FY10-12E

We expect net revenue growth of to remain healthy over the medium term, driven by growth in the DTH subscriber base. We forecast 25% CAGR over FY09-12E growth in average net subscriber base.

Figure 21. Dish TV – Gross and Net Subscribers Base (mn) Figure 22. Dish TV – Net Revenues and Revenue Growth Trends (Rs M, %)

- - 0% 2008 2009 2010E 2011E 2012E 2007 2008 2009 2010E 2011E 2012E DTH Revenues (Rs Mn, LHS) Overall Revenues (Rs Mn, LHS) Growth in DTH Revenues (%, RHS) Net Subscibers (m) Gross Subscribers (m)

Source: Company Reports and CIRA Estimates Source: Company Reports and CIRA Estimates

Pricing pressure was visible in FY10 — we think ARPUs would remain muted in near term given the heightened competitive activity- we forecast YoY declines in ARPUs in both FY10E and FY11E, before a slight pick up in FY12E. Avg. monthly based on subscription revenues should be ~Rs134 in FY11E, below management guidance of ARPUs of Rs150+ and street expectations.

Figure 23. Dish TV – Monthly ARPUs based on Subscription Revenues (Rs) Figure 24. Dish TV – Monthly ARPUs based on Gross Revenue (Rs)

Rs Rs

160 158 200

155 195 194

150 190 146 145 141 185 183 139 182 140 180 180 135 134 175 175 130

125 170

120 165 2008 2009 2010E 2011E 2012E 2008 2009 2010E 2011E 2012E

Source: Company Reports and CIRA Estimates Source: Company Reports and CIRA Estimates

Dish TV attempts to upgrade older customers to higher value packs, offer more channels on the al-carte basis and expand value added services that should impact ARPUs positively. Dish TV seems to be balancing pace of subscriber addition with profitability – recently, there are signs of the market following suit with a more rationality and focus and profitability compared to the past.

17 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

ARPUs have high sensitivity to Figure 25. Dish TV – Sensitivity to Pricing profitability, ~1% increase in ARPUs, leads to ~6% increase to EBITDA ARPU based on gross ARPU based on subscription EBITDA (Rs Mn) % Change from base case revenue (Rs/month) revenue (Rs/month) 181 138 2,440 18.3% 179 136 2,313 12.2% 177 135 2,188 6.1% 175 134 2,061 0.0% 174 132 1,935 -6.1% 172 131 1,809 -12.2% 170 130 1,683 -18.3% Source: Citi Investment Research and Analysis

1% increase in no of subscribers, leads to Figure 26. Dish TV – Sensitivity to Subscriber Addition 1.5% increase to EBITDA Avg Net subs (mn) Gross subs added (mn) EBITDA (Rs Mn) % Change from base case 6.18 1.761967 -4.6% 6.24 1.89 1999 -3.0% 6.31 2.02 2030 -1.5% 6.37 2.15 2061 0.0% 6.43 2.28 2093 1.5% 6.50 2.40 2124 3.0% 6.56 2.53 2156 4.6% Source: Citi Investment Research and Analysis

Large cable operators and DTH players command a carriage fee from broadcasters for providing better positioning/bandwidth to channels. Our discussions with industry participants suggest that this revenue stream is likely to remain flat in the near term for DTH operators. Given the buoyancy in the industry/capital markets, we see scope for an increase in carriage fees over the medium term.

Other revenue streams (teleport, accessories and call center charges) constitute only ~3% of sales (as of FY09).

EBITDA turnaround in FY10E; Sharp Margin Expansion Ahead

We expect a strong ~150% EBITDA CAGR over FY10-12E with EBITDA margins improving from ~6% in FY10 to ~25% in FY12E.

Management's efforts to control costs are already visible in 9mFY10 results — employee costs and other SG&A have declined by 2% YoY and 32% YoY. While we expect staff costs to go up in FY11 given the rebound in the industry, we expect margin benefits coming in from scale/operating leverage.

18 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

Figure 27. Dish TV – EBITDA and EBITDA Margins Trends (Rs Mn, %)

5,000 30% 25% 4,189 15% 4,000 20% 7% 10% 3,000 2,061 0% 2,000 -10% 1,000 767 -24% -20% - -30% (1,000) -40%

(2,000) (1,738) -52% (1,788) -50% (2,128) (3,000) -60% 2007 2008 2009 2010E 2011E 2012E

EBITDA (Rs Mn, LHS) EBITDA Margin (%, RHS)

Source: Company Reports and Citi Investment Research & Analysis estimates

Dish TV has entered in fixed rate agreements with most broadcasters– thus, the profitability should increase meaningfully as subscriber growth continues at a healthy pace. Programming and other costs as % of overall revenues are likely to come down– our estimate is that these should come down from 47% of sales in FY09 to ~32% of net sales by FY12E.

Programming costs as % of overall Figure 28. Dish TV – Programming and Other Costs (Rs Mn, % of Net Revenues) revenues are likely to come down primarily due to fixed rate agreements 6,000 90% with most broadcasters 83% 80% 5,000 70%

4,000 60% 57% 50% 47% 3,000 40% 40% 36% 32% 2,000 30%

20% 1,000 10%

- 0% 2007 2008 2009 2010E 2011E 2012E Programming & other costs (Rs Mn, LHS) As a % of sales (%, RHS)

Source: Company Reports and Citi Investment Research & Analysis estimates

19 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

Dish TV had an arrangement with group company, Wire and Wireless (India), for distribution of channels to MSOs/LCOs through the HITS platform. The company had permission from the Information & Broadcasting Ministry for implementation of the HITS platform by which they could provide digital signals to subscribers on a large scale. However, from April 1, 2010, the group has decided to suspend its HITS operations given the unclear regulations. From Dish TV's perspective, the impact of HITS suspension should be EBITDA neutral, as per the management.

Payback profile to improve meaningfully

Operating profit per subscriber is likely to We analyse Dish TV on a per sub basis as shown below: go up by ~60% over the next 2 years Figure 29. Dish TV – Per Sub Analysis

2009 2010 2011 2012 2013 2014 Subscriber Acquisition Cost (Rs/sub) 2,679 2,465 2,465 2,416 2,367 2,320

Subscription revenue 146 139 134 141 148 152 Other revenue 37 41 42 42 43 44 Total revenue (Rs/sub/ month) 182 180 175 183 191 196

Expenses (Rs/sub /month) 160 136 121 113 112 111

Operating profit (Rs/sub /month) 22 44 55 70 78 85 Growth in operating profit (%) 100% 25% 28% 12% 8%

Churn rate 6.7% 7.7% 8.9% 8.0% 8.0% 8.0% Average sub life (years) 15.0 13.0 11.2 12.6 12.5 12.5

Life time Earning from a sub (Rs) 13,078 11,664 10,056 12,636 13,217 13,855

Payback period (months) 55 45 40 36 34 31 Payback period (years) 4.6 3.8 3.4 3.0 2.8 2.6 Source: Citi Investment Research and Analysis

 Fixed content cost agreements will help gross profit per sub as growth in subs outpaces increase in content costs.

 Other fixed costs (transponder cost, some part of employee/other costs) are likely to decline on a per sub basis as they get distributed over a larger subscriber base.

 Over the longer term, operating leverage would be visible, as ARPU starts increasing YoY.

We conclude that payback period per new sub is likely to reduce going forward, (from ~55months in FY09 to ~36months in FY12E). Thus, operating profit per subscriber is likely to go up by ~60% over the next 2 years, improving the payback period profile for every subscriber.

We choose to be conservative with our assumptions at this juncture and note that there maybe upside risks to this analysis, in case a) Dish TV positively surprises with lower content costs/other costs (as seen over the past few quarters) and/ or b) ARPUs are higher than our subdued forecasts (as expected by the management and many other industry participants).

20 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

Net Profit Breakeven in 2HFY12E

Dish TV has high depreciation expense as it amortizes CPE cost over a period of five years. Net profit breakeven will happen only in 2HFY12E despite the EBITDA breakeven in FY10E.

Figure 30. Dish TV – Net Profit Trends (Rs Mn) Figure 31. Dish TV – EPS Trends (Rs/share)

Rs Mn Rs

- - (158) (0.1) (1,000) (2.0) (1.8) (2.7) (2,000) (4.0) (1,902) (2,401) (3,000) (2,845) (6.0) (5.6)

(7.0) (4,000) (8.0) (4,141)

(5,000) (4,807) (10.0) (9.7)

(6,000) (12.0) 2007 2008 2009 2010E 2011E 2012E 2007 2008 2009 2010E 2011E 2012E

Source: Company Reports and CIRA Estimates Source: Company Reports and CIRA Estimates

Capital Infusion improves balance sheet profile

Net debt to equity now <1x; likely to go Balance sheet concerns have eased post the recent rights and GDR issues up given the high growth phase amounting to ~US$350m. The company's net worth has turned positive during the year. We believe the management has adequate capital for subscriber acquisition and profitable growth for the next ~18 months. While leverage will go up again given the high growth trajectory, we remain comfortable given the funding position and expect FCF breakeven in FY12E.

21 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

Dish TV has adequate capital for next ~18 Figure 32. Dish TV – Free Cash Flows (Rs Mn) months and would likely turn FCF positive in FY12E Rs Mn

1,000 542

(1,000)

(2,000)

(3,000) (2,697) (2,956) (4,000)

(5,000) (4,326)

(6,000)

(7,000)

(8,000) (8,070) (9,000) 2008 2009 2010E 2011E 2012E

Source: Company Reports and Citi Investment Research & Analysis estimates

Negative Working Capital

Dish TV continues to have negative working capital: (a) customers pay up the subscription fee in advance, and (b) DTH operators pay broadcasters with a lag (around 2 months, based on our discussions) Thus, we think, Dish TV's cash conversion cycle should be comfortable.

The current working capital has a large quantum of exceptional (one-off) items in its current liabilities. Going forward, we estimate current liabilities & provisions to move to ~Rs21bn by FY11E – in line with management’s view.

22 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010 Risks

Key downside risks to our call include:

1. Irrational competitive intensity — Increased competitive intensity for a prolonged time may negatively affect pricing and margins.

2. High churn — We assume a churn rate of 8-10% in our models. If churn rates increase, profitability could fall meaningfully as companies in the sector subsidize the initial upfront costs of the subscriber with the belief that they will be able to offset it over the future years.

3. Adverse currency movements — Dish TV imports most of its consumer premise equipment (dollar denominated) and hence, fluctuations in foreign currency exchange rates could significantly affect profitability.

4. Investments in subsidiaries and group companies — As per the FY09 annual report, management has provided advances outstanding to subsidiary Agrani Satellite Services to the tune of ~Rs2bn.

5. Government policies — The DTH industry is highly regulated. Companies require various licenses and/or approvals and are subject to various taxation polices by government bodies. Any changes could lead to higher costs or could adversely affect business prospects.

6. Technological obsolescence — Emergence of IPTV and/or could pose a threat to growth in the long term. New technologies may replace DTH set top boxes.

Key upside risks include: (1) acceleration in ARPU growth (helping revenues and profit growth), driven by a wide consumer acceptance of value added service bouquets, introduction of adult content, etc.; (2) moderation in the higher tax regime- reduction in license fee (from ~10% levels currently to ~6%), entertainment tax, CENVAT, etc.

23 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010 Annexure 1: Financial Statements

Figure 33. Dish TV (Standalone) – Income Statement Summary (Rs Mn, %)

Year ending March 2007 2008 2009 2010E 2011E 2012E DTH Revenues 1,438 3,898 7,149 10,019 12,607 16,077 % Change 600% 171% 83% 40% 26% 28%

TOTAL Revenues 1,909 4,133 7,377 10,716 13,412 16,923 % Change 507% 116% 78% 45% 25% 26%

Expenditure Programming & other costs 1,676 2,533 3,771 4,629 5,183 5,908 As a % of sales 87.8% 61.3% 51.1% 43.2% 38.6% 34.9% % Change 631% 51% 49% 23% 12% 14%

Other COGS/Operating Expenses 572 1,102 1,635 2,388 2,746 3,076 % Change 4% 93% 48% 46% 15% 12%

Total Costs of goods & services 2,248 3,635 5,406 7,017 7,929 8,984 As a % of sales 117.7% 87.9% 73.3% 65.5% 59.1% 53.1% % Change 62% 49% 30% 13% 13%

Total employee costs 149 295 394 395 493 567 As a % of sales 7.8% 7.1% 5.3% 3.7% 3.7% 3.4% % Change 98% 33% 0% 25% 15%

Admin & Other Costs 341 322 418 405 460 507 As a % of sales 17.8% 7.8% 5.7% 3.8% 3.4% 3.0% % Change -6% 30% -3% 14% 10% Bank & financial charges 32 44 292 100 110 120 Net Exchange difference - - 244 - - -

Selling & Distribution 1,029 2,028 2,509 2,158 2,487 2,708 As a % of sales 53.9% 49.1% 34.0% 20.1% 18.5% 16.0% % Change 97% 24% -14% 15% 9%

EBITDA (1,889) (2,190) (1,887) 641 1,933 4,037 EBITDA Margin (%) -99.0% -53.0% -25.6% 6.0% 14.4% 23.9% Source: Company Reports and Citi Investment Research & Analysis estimates

24 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

Figure 34. Dish TV (Consolidated) – Income Statement Summary (Rs Mn, %)

Year ending March 2007 2008 2009 2010E 2011E 2012E DTH Revenues 1,438 3,898 7,149 10,019 12,607 16,077 % Change 600% 171% 83% 40% 26% 28%

TOTAL Revenues 1,916 4,128 7,381 10,724 13,430 16,962 % Change 509% 115% 79% 45% 25% 26%

Expenditure Programming & other costs 1,585 2,339 3,479 4,271 4,781 5,451 As a % of sales 82.7% 56.7% 47.1% 39.8% 35.6% 32.1% % Change 591% 48% 49% 23% 12% 14%

Total Costs of goods & services 2,207 3,615 5,440 7,015 7,938 8,986 As a % of sales 115.2% 87.6% 73.7% 65.4% 59.1% 53.0% % Change 64% 50% 29% 13% 13%

Total employee costs 220 420 543 544 680 782 As a % of sales 11.5% 10.2% 7.4% 5.1% 5.1% 4.6% % Change 91% 29% 0% 25% 15%

- Admin & Other Costs 295 358 469 454 522 576 As a % of sales 15.4% 8.7% 6.4% 4.2% 3.9% 3.4% % Change 21% 31% -3% 15% 10% - Bank & financial charges 33 44 293 105 115 125 - Net Exchange difference - - 262 - - -

Total Admin & Other Costs 328 402 1,025 559 637 701 As a % of sales 17.1% 9.7% 13.9% 5.2% 4.7% 4.1% % Change 23% 155% -45% 14% 10%

Selling & Distribution 899 1,819 2,162 1,838 2,113 2,304 As a % of sales 46.9% 44.1% 29.3% 17.1% 15.7% 13.6% % Change 102% 19% -15% 15% 9%

EBITDA (1,738) (2,128) (1,788) 767 2,061 4,189 EBITDA Margin (%) -90.7% -51.6% -24.2% 7.2% 15.3% 24.7%

Depreciation & Amortization 624 1,570 2,289 3,176 3,683 4,065 % of Net PPE 54.6% 19.0% 23.8% 23.8% 23.7% 22.7%

EBIT (2,362) (3,699) (4,077) (2,409) (1,622) 124 EBIT Margin (%) -123.3% -89.6% -55.2% -22.5% -12.1% 0.7%

Other Income 46 34 13 80 95 210 Interest cost 85 469 737 516 375 510 % of avg net debt 9.3% 13.9% 9.4% 7.8% 9.0% 9.0% PBT (2,401) (4,134) (4,801) (2,845) (1,902) (176) Tax (0) 7 6 - - (18) PAT (2,401) (4,141) (4,807) (2,845) (1,902) (158)

EPS (Rs) (5.6) (9.7) (7.0) (2.7) (1.8) (0.1) Source: Company Reports and Citi Investment Research & Analysis estimates

25 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

Figure 35. Dish TV (Consolidated) – Balance Sheet (Rs Mn)

As of 31 March 2007 2008 2009 2010E 2011E 2012E APPLICATION OF FUNDS Cash and Equivalent 128 511 805 7,149 3,913 3,654 Sundry debtors 418 403 526 734 920 1,069 Inventories 12 58 32 47 59 74 Loans and advances 1,555 1,876 6,706 8,043 9,401 11,025 Total current assets 2,113 2,849 8,069 15,973 14,292 15,822 Current liabilities & provisions 9,030 11,706 16,391 18,230 20,817 24,594 Net Current Assets (6,917) (8,857) (8,322) (2,257) (6,525) (8,772) Deferred tax assets (7) (8) (6) (6) (6) (6) Gross block 6,580 9,119 14,211 19,584 25,633 31,286 Less : Accumulated depreciation 743 2,314 4,600 7,776 11,460 15,524 Net block 5,837 6,806 9,611 11,807 14,173 15,762 Capital Work in Progress 2,448 2,793 3,734 3,734 3,734 3,734 Net PPE 8,285 9,599 13,345 15,541 17,907 19,496 Total assets 1,361 735 5,017 13,279 11,376 10,718 SOURCES OF FUNDS Share capital 428 428 687 1,063 1,063 1,063 Reserves and surplus - - 2,792 15,315 15,315 15,315 Less: P&L Account 997 5,139 9,954 12,799 14,702 14,860 Share holders’ funds (569) (4,710) (6,475) 3,579 1,676 1,518 Debt 1,930 5,445 11,492 9,700 9,700 9,200 Total liabilities and equity 1,361 735 5,017 13,279 11,376 10,718 Source: Company Reports and Citi Investment Research & Analysis estimates

Figure 36. Dish TV (Consolidated) – Cash Flow Statement (Rs Mn)

Cash Flow Statement 2008 2009 2010E 2011E 2012E Net income (4,141) (4,807) (2,845) (1,902) (158) Minority Interest & exceptionals - - - - - Depreciation 1,570 2,289 3,176 3,683 4,065 Change in Deferred Tax Liab 1 (2) - - - Working capital changes (2,323) 241 (279) (1,031) (1,989) Cash flow from Operations (247) (2,761) 610 2,812 5,896 CapEx, acquisitions, divestures (2,885) (6,034) (5,373) (6,049) (5,654) Other investing cash flows - - 0 - - Cash flow from Investing (2,885) (6,034) (5,373) (6,049) (5,654) Borrowings 3,515 6,047 (1,792) - (500) Equity Changes - 3,043 12,898 0 (0) Dividends - - - -- Other financing cash flows - - - - - Cash flow from Financing 3,515 9,090 11,107 0 (500) Net cash flows 384 294 6,344 (3,237) (258) Source: Company Reports and Citi Investment Research & Analysis estimates

26 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

Annexure 2: Key Management Personnel

Figure 37. Dish TV – Background of Key Management Personnel

Name Age Position Background Mr. Subhash Chandra 59 Non-Executive Chairman Mr. Chandra is the promoter of the Essel Group of Companies. His business interests include television networks and film entertainment, cable systems, satellite communications, theme parks, flexible packaging, family entertainment centers and online gaming. Mr. Chandra has been the recipient of numerous honorary degrees, industry awards and civic honors, including being named ‘Global Indian Entertainment Personality of the Year’ by FICCI for 2004, ‘Business Standard’s Businessman of the Year’ in 1999, ‘Entrepreneur of the Year’ by Ernst & Young in 1999 and ‘Enterprise CEO of the Year’ by International Brand Summit.

Mr.Jawahar Lal Goel 54 Managing Director Mr Goel has been actively involved in creation and expansion of Essel Group of Industries and has been instrumental in establishing Dish TV as a prominent DTH brand in India. He is the president of the Indian Broadcasting Foundation and is an active member on the Board of various committees and task forces, set up by Ministry of Information & Broadcasting. Mr Goel has been the Managing Director of Dish TV since January 6, 2007

Mr.Salil Kapoor 41 Chief Operating Officer Mr Kapoor has been the Chief Operating Officer since July 2008. He is responsible for sales, marketing, service and overall supervision of the zonal offices of Company. He has work experience of over 18 years in the industry with various global corporations including Samsung India Elec. Ltd., Microsoft Corp.India (Pvt) Ltd., LG Electronics India, Blue Star Limited and Fedders Llyod Ltd. Mr. Kapoor holds a bachelor of engineering from Bangalore University and MBA from University of Delhi.

Mr. Rajiv Khattar 45 President Projects Rajiv Khattar has been President-Projects since September 1, 2005. He is responsible for strategic tie-ups and technology upgrades of the DTH platform. Mr. Khattar has an aggregate work experience of 20 years and experience of 12 years in the telecom industry. Prior to joining Dish, he worked with Reliance Infocom Limited as the President for Netway.

Mr. Amitabh Kumar 56 President Technology Mr Kumar is responsible for broadcasting operations of Dish TV since September 2005. Prior to joining Dish, he has held various senior positions in the Industry including the position of the acting Chairman and Managing Director of Tata Communications Limited (formerly known as Videsh Sanchar Nigam Limited). Mr. Kumar has an aggregate work experience of 31 years in the telecom industry and holds a professional certificate in electronic data interchange from All India Management Association and Deakin University, Australia.

Mr. Rajeev Dalmia 45 Chief Financial Officer Mr. Dalmia has an overall work experience of 20 years in the finance industry and is responsible for maintaining finance and accounts of the company. He is a qualified fellow chartered accountant from the Institute of Chartered Accountants of India

Source: Company Reports

27 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

Dish TV

Company description

Dish TV is the leader in the Direct to Home (DTH) satellite broadcast operations in India. It has a strong backing of the Essel Group, the parent of the Zee Network. After its launch in 2005, the company now has ~7m subscribers with a wide distribution network and strong infrastructure. With the advent of digital technology, Dish is able to offer superior services with a good range of about 250 television channels & services.

Investment strategy

We rate Dish TV Buy/Medium Risk (1M). Aggressive investments by large corporates in the DTH category translate into high market growth, driven by consumers shifting from analog cable, as well as, increase in new subs from cable dark areas. We think management focus has shifted from a pure growth- oriented strategy to one based on a mix of both calibrated subscriber growth and profitability. The recent capital issues provide management adequate capital for subscriber acquisition and profitable growth for next 18 months. Low cost base, scale benefits and attractive content tie ups will ensure quicker payback as contribution/sub is likely to rise ~1.6x over FY10-12E. Consensus estimates are high likely leading to some volatility near earnings. That said, we believe sharp stock underperformance over the past year prices in near-term pricing pressure and gives long-term investors a good opportunity to build positions. We expect ~26% revenue CAGR over FY10-12E, with EBITDA margins expanding ~1750bps to over the same period to ~25%.

Valuation

Dish TV operates in an industry at a nascent stage with high growth rates (on a small base), so we do not use equity multiples approach as our primary valuation methodology, given that current financials would not truly reflect the value of the business. We thus think a DCF would be best suited, giving a target price of Rs48 per share (WACC = 11.7% and g = 4.5%). The stock will trade at 13x FY12E EV/EBITDA at our target price, which we think is reasonable given (a) high growth in the business, (b) We expect margins to hit ~25% in FY12E, and, (c) Positive FCF FY12E onwards as the business achieves critical size. At our target price, Dish TV would trade at 3.9x/3x FY11E/FY12E EV/Sales, which is at a premium to global peers trading between 1-3x. We think this is justified given the superior revenue growth outlook (~26% CAGR over FY10-12E for Dish TV v/s. global C&S average of ~7%).

Risks

We rate Dish TV shares Medium Risk overriding the High Risk rating suggested by quantitative risk-rating system that tracks 260-day historical share price volatility. We think this is warranted given Dish TV's strong leadership position in India's DTH industry. As funding concerns are behind us, a lower risk rating is justified. Key downside risks are: 1) Irrational competition may negatively impact ARPUs and churn. 2) Dish TV imports most of its consumer premise equipments (dollar denominated), and thus, currency fluctuations could significantly impact profitability. 3) The DTH industry is highly regulated and adverse changes in government policies may impact business prospects. 4) Investments in subsidiaries and group companies could be an overhang. 28 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

Appendix A-1 Analyst Certification

The research analyst(s) primarily responsible for the preparation and content of all or any identified portion of this research report hereby certifies that, with respect to each issuer or security or any identified portion of the report with respect to an issuer or security that the research analyst covers in this research report, all of the views expressed in this research report accurately reflect their personal views about those issuer(s) or securities. The research analyst(s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by that research analyst in this research report. IMPORTANT DISCLOSURES INR Dish TV (DSTV.BO) Covered Not covered Chart current as of 29 April 2010 Ratings and Target Price History Fundamental Research 150

100

0 MJJASONDJFMAMJ J ASOND J FMAMJ J AS OND J FM A 2008 2009 2010 * Indicates change Rating/target price changes above reflect Eastern Standard Time

A director of Citi serves on the board and is a member of Audit Committee of Comcast Corporation. Citigroup Global Markets, Inc. is acting as a financial co-advisor to General Electric in its agreement to form a joint venture with Comcast. Citigroup Global Markets Inc. or its affiliates beneficially owns 1% or more of any class of common equity securities of Comcast Corp, Zee Entertainment. This position reflects information available as of the prior business day. Within the past 12 months, Citigroup Global Markets Inc. or its affiliates has acted as manager or co-manager of an offering of securities of Comcast Corp, Cablevision Systems Corp, DIRECTV Group Inc. Citigroup Global Markets Inc. or its affiliates has received compensation for investment banking services provided within the past 12 months from ASTRO, Austar United Communications Ltd, Comcast Corp, Cablevision Systems Corp, DIRECTV Group Inc. Citigroup Global Markets Inc. or its affiliates expects to receive or intends to seek, within the next three months, compensation for investment banking services from Cablevision Systems Corp. Citigroup Global Markets Inc. or an affiliate received compensation for products and services other than investment banking services from ASTRO, Austar United Communications Ltd, Bharti Airtel, British Sky Broadcasting Group PLC, Comcast Corp, Cablevision Systems Corp, DIRECTV Group Inc in the past 12 months. Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as investment banking client(s): ASTRO, Austar United Communications Ltd, Comcast Corp, Cablevision Systems Corp, DIRECTV Group Inc. Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as clients, and the services provided were non-investment-banking, securities- related: ASTRO, Austar United Communications Ltd, Bharti Airtel, British Sky Broadcasting Group PLC, Comcast Corp, Cablevision Systems Corp, DIRECTV Group Inc. Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as clients, and the services provided were non-investment-banking, non- securities-related: ASTRO, Austar United Communications Ltd, Bharti Airtel, British Sky Broadcasting Group PLC, Comcast Corp, Cablevision Systems Corp, DIRECTV Group Inc. Rohini Malkani has in the past worked with the India government or its divisions in her personal capacity. Analysts' compensation is determined based upon activities and services intended to benefit the investor clients of Citigroup Global Markets Inc. and its affiliates ("the Firm"). Like all Firm employees, analysts receive compensation that is impacted by overall firm profitability which includes investment banking revenues. The Firm is a market maker in the publicly traded equity securities of Comcast Corp, DISH Network Corp, DIRECTV Group Inc. For important disclosures (including copies of historical disclosures) regarding the companies that are the subject of this Citi Investment Research & Analysis product ("the Product"), please contact Citi Investment Research & Analysis, 388 Greenwich Street, 28th Floor, New York, NY, 10013, Attention: Legal/Compliance. In addition, the same important disclosures, with the exception of the Valuation and Risk assessments and historical disclosures, are contained on the Firm's disclosure website at www.citigroupgeo.com. Valuation and Risk assessments can be found in the text of the most recent research note/report regarding the subject company. Historical disclosures (for up to the past three years) will be provided upon request.

29 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

Citi Investment Research & Analysis Ratings Distribution Data current as of 31 Mar 2010 Buy Hold Sell Citi Investment Research & Analysis Global Fundamental Coverage 51% 36% 14% % of companies in each rating category that are investment banking clients 48% 46% 39% Guide to Citi Investment Research & Analysis (CIRA) Fundamental Research Investment Ratings: CIRA's stock recommendations include a risk rating and an investment rating. Risk ratings, which take into account both price volatility and fundamental criteria, are: Low (L), Medium (M), High (H), and Speculative (S). Investment ratings are a function of CIRA's expectation of total return (forecast price appreciation and dividend yield within the next 12 months) and risk rating. For securities in developed markets (US, UK, Europe, Japan, and Australia/New Zealand), investment ratings are:Buy (1) (expected total return of 10% or more for Low-Risk stocks, 15% or more for Medium-Risk stocks, 20% or more for High-Risk stocks, and 35% or more for Speculative stocks); Hold (2) (0%-10% for Low-Risk stocks, 0%-15% for Medium-Risk stocks, 0%-20% for High-Risk stocks, and 0%-35% for Speculative stocks); and Sell (3) (negative total return). For securities in emerging markets (Asia Pacific, Emerging Europe/Middle East/Africa, and Latin America), investment ratings are:Buy (1) (expected total return of 15% or more for Low-Risk stocks, 20% or more for Medium-Risk stocks, 30% or more for High-Risk stocks, and 40% or more for Speculative stocks); Hold (2) (5%-15% for Low- Risk stocks, 10%-20% for Medium-Risk stocks, 15%-30% for High-Risk stocks, and 20%-40% for Speculative stocks); and Sell (3) (5% or less for Low-Risk stocks, 10% or less for Medium-Risk stocks, 15% or less for High-Risk stocks, and 20% or less for Speculative stocks). Investment ratings are determined by the ranges described above at the time of initiation of coverage, a change in investment and/or risk rating, or a change in target price (subject to limited management discretion). At other times, the expected total returns may fall outside of these ranges because of market price movements and/or other short-term volatility or trading patterns. Such interim deviations from specified ranges will be permitted but will become subject to review by Research Management. Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the stock's expected performance and risk. Guide to Citi Investment Research & Analysis (CIRA) Corporate Bond Research Credit Opinions and Investment Ratings: CIRA's corporate bond research issuer publications include a fundamental credit opinion of Improving, Stable or Deteriorating and a complementary risk rating of Low (L), Medium (M), High (H) or Speculative (S) regarding the credit risk of the company featured in the report. The fundamental credit opinion reflects the CIRA analyst's opinion of the direction of credit fundamentals of the issuer without respect to securities market vagaries. The fundamental credit opinion is not geared to, but should be viewed in the context of debt ratings issued by major public debt ratings companies such as Moody's Investors Service, Standard and Poor's, and Fitch Ratings. CBR risk ratings are approximately equivalent to the following matrix: Low Risk Triple A to Low Double A; Low to Medium Risk High Single A through High Triple B; Medium to High Risk Mid Triple B through High Double B; High to Speculative Risk Mid Double B and Below. The risk rating element illustrates the analyst's opinion of the relative likelihood of loss of principal when a fixed income security issued by a company is held to maturity, based upon both fundamental and market risk factors. Certain reports published by CIRA will also include investment ratings on specific issues of companies under coverage which have been assigned fundamental credit opinions and risk ratings. Investment ratings are a function of CIRA's expectations for total return, relative return (to publicly available Citigroup bond indices performance), and risk rating. These investment ratings are: Buy/Overweight the bond is expected to outperform the relevant Citigroup bond market sector index (Broad Investment Grade, High Yield Market or Emerging Market), performances of which are updated monthly and can be viewed at https://fidirect.citigroup.com/ using the "Indexes" tab; Hold/Neutral Weight the bond is expected to perform in line with the relevant Citigroup bond market sector index; or Sell/Underweight the bond is expected to underperform the relevant sector of the Citigroup indexes. NON-US RESEARCH ANALYST DISCLOSURES Non-US research analysts who have prepared this report (i.e., all research analysts listed below other than those identified as employed by Citigroup Global Markets Inc.) are not registered/qualified as research analysts with FINRA. Such research analysts may not be associated persons of the member organization and therefore may not be subject to the NYSE Rule 472 and NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. The legal entities employing the authors of this report are listed below: Citigroup Global Markets India Private Limited Surendra Goyal, CFA,Aditya Mathur OTHER DISCLOSURES The subject company's share price set out on the front page of this Product is quoted as at 29 April 2010 04:00 PM on the issuer's primary market. Citigroup Global Markets Inc. and/or its affiliates has a significant financial interest in relation to Bharti Airtel, Comcast Corp, DISH Network Corp, DIRECTV Group Inc. (For an explanation of the determination of significant financial interest, please refer to the policy for managing conflicts of interest which can be found at www.citigroupgeo.com.) This Product has been modified by the author following a discussion with one or more of the named issuers/issuers of the named securities. For securities recommended in the Product in which the Firm is not a market maker, the Firm is a liquidity provider in the issuers' financial instruments and may act as principal in connection with such transactions. The Firm is a regular issuer of traded financial instruments linked to securities that may have been recommended in the Product. The Firm regularly trades in the securities of the issuer(s) discussed in the Product. The Firm may engage in securities transactions in a manner inconsistent with the Product and, with respect to securities covered by the Product, will buy or sell from customers on a principal basis. Securities recommended, offered, or sold by the Firm: (i) are not insured by the Federal Deposit Insurance Corporation; (ii) are not deposits or other obligations of any insured depository institution (including Citibank); and (iii) are subject to investment risks, including the possible loss of the principal amount invested. Although information has been obtained from and is based upon sources that the Firm believes to be reliable, we do not guarantee its accuracy and it may be incomplete and condensed. Note, however, that the Firm has taken all reasonable steps to determine the accuracy and completeness of the disclosures made in the Important Disclosures section of the Product. The Firm's research department has received assistance from the subject company(ies) referred to in this Product including, but not limited to, discussions with management of the subject company(ies). Firm policy prohibits research analysts from sending draft research to subject companies. However, it should be presumed that the author of the Product has had discussions with the subject company to ensure factual accuracy prior to publication. All opinions, projections and estimates constitute the judgment of the author as of the date of the Product and these, plus any other information contained in the Product, are subject to change without notice. Prices and availability of financial instruments also are subject to change without notice. Notwithstanding other departments within the Firm advising the companies discussed in this Product, information obtained in such role is not used in the preparation of the Product. Although Citi Investment Research & Analysis (CIRA) does not set a predetermined frequency for publication, if the Product is a fundamental research report, it is the intention of CIRA to provide research coverage of the/those issuer(s) mentioned therein, including in response to news affecting this issuer, subject to applicable quiet periods and capacity constraints. The Product is for

30 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in the Product must take into account existing public information on such security or any registered prospectus. Investing in non-U.S. securities, including ADRs, may entail certain risks. The securities of non-U.S. issuers may not be registered with, nor be subject to the reporting requirements of the U.S. Securities and Exchange Commission. There may be limited information available on foreign securities. Foreign companies are generally not subject to uniform audit and reporting standards, practices and requirements comparable to those in the U.S. Securities of some foreign companies may be less liquid and their prices more volatile than securities of comparable U.S. companies. In addition, exchange rate movements may have an adverse effect on the value of an investment in a foreign stock and its corresponding dividend payment for U.S. investors. Net dividends to ADR investors are estimated, using withholding tax rates conventions, deemed accurate, but investors are urged to consult their tax advisor for exact dividend computations. Investors who have received the Product from the Firm may be prohibited in certain states or other jurisdictions from purchasing securities mentioned in the Product from the Firm. Please ask your Financial Consultant for additional details. Citigroup Global Markets Inc. takes responsibility for the Product in the United States. Any orders by US investors resulting from the information contained in the Product may be placed only through Citigroup Global Markets Inc. Important Disclosures for Morgan Stanley Smith Barney LLC Customers: Morgan Stanley & Co. Incorporated (Morgan Stanley) research reports may be available about the companies that are the subject of this Citi Investment Research & Analysis (CIRA) research report. Ask your Financial Advisor or use smithbarney.com to view any available Morgan Stanley research reports in addition to CIRA research reports. Important disclosure regarding the relationship between the companies that are the subject of this CIRA research report and Morgan Stanley Smith Barney LLC and its affiliates are available at the Morgan Stanley Smith Barney disclosure website at www.morganstanleysmithbarney.com/researchdisclosures. The required disclosures provided by Morgan Stanley and Citigroup Global Markets, Inc. on Morgan Stanley and CIRA research relate in part to the separate businesses of Citigroup Global Markets, Inc. and Morgan Stanley that now form Morgan Stanley Smith Barney LLC, rather than to Morgan Stanley Smith Barney LLC in its entirety. For Morgan Stanley and Citigroup Global Markets, Inc. specific disclosures, you may refer to www.morganstanley.com/researchdisclosures and https://www.citigroupgeo.com/geopublic/Disclosures/index_a.html. This CIRA research report has been reviewed and approved on behalf of Morgan Stanley Smith Barney LLC. This review and approval was conducted by the same person who reviewed this research report on behalf of CIRA. This could create a conflict of interest. The Citigroup legal entity that takes responsibility for the production of the Product is the legal entity which the first named author is employed by. The Product is made available in Australia through Citigroup Global Markets Australia Pty Ltd. (ABN 64 003 114 832 and AFSL No. 240992), participant of the ASX Group and regulated by the Australian Securities & Investments Commission. Citigroup Centre, 2 Park Street, Sydney, NSW 2000. The Product is made available in Australia to Private Banking wholesale clients through Citigroup Pty Limited (ABN 88 004 325 080 and AFSL 238098). Citigroup Pty Limited provides all financial product advice to Australian Private Banking wholesale clients through bankers and relationship managers. If there is any doubt about the suitability of investments held in Citigroup Private Bank accounts, investors should contact the Citigroup Private Bank in Australia. Citigroup companies may compensate affiliates and their representatives for providing products and services to clients. The Product is made available in Brazil by Citigroup Global Markets Brasil - CCTVM SA, which is regulated by CVM - Comissão de Valores Mobiliários, BACEN - Brazilian Central Bank, APIMEC - Associação dos Analistas e Profissionais de Investimento do Mercado de Capitais and ANBID - Associação Nacional dos Bancos de Investimento. Av. Paulista, 1111 - 11º andar - CEP. 01311920 - São Paulo - SP. If the Product is being made available in certain provinces of Canada by Citigroup Global Markets (Canada) Inc. ("CGM Canada"), CGM Canada has approved the Product. Citigroup Place, 123 Front Street West, Suite 1100, Toronto, Ontario M5J 2M3. The Product is made available in France by Citigroup Global Markets Limited, which is authorised and regulated by Financial Services Authority. 1-5 Rue Paul Cézanne, 8ème, Paris, France. The Product may not be distributed to private clients in Germany. The Product is distributed in Germany by Citigroup Global Markets Deutschland AG & Co. KGaA, which is regulated by Bundesanstalt fuer Finanzdienstleistungsaufsicht (BaFin). Frankfurt am Main, Reuterweg 16, 60323 Frankfurt am Main. If the Product is made available in Hong Kong by, or on behalf of, Citigroup Global Markets Asia Ltd., it is attributable to Citigroup Global Markets Asia Ltd., Citibank Tower, Citibank Plaza, 3 Garden Road, Hong Kong. Citigroup Global Markets Asia Ltd. is regulated by Hong Kong Securities and Futures Commission. If the Product is made available in Hong Kong by The Citigroup Private Bank to its clients, it is attributable to Citibank N.A., Citibank Tower, Citibank Plaza, 3 Garden Road, Hong Kong. The Citigroup Private Bank and Citibank N.A. is regulated by the Hong Kong Monetary Authority. The Product is made available in India by Citigroup Global Markets India Private Limited, which is regulated by Securities and Exchange Board of India. Bakhtawar, Nariman Point, Mumbai 400-021. The Product is made available in Indonesia through PT Citigroup Securities Indonesia. 5/F, Citibank Tower, Bapindo Plaza, Jl. Jend. Sudirman Kav. 54-55, Jakarta 12190. Neither this Product nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens wherever they are domiciled or to Indonesian residents except in compliance with applicable capital market laws and regulations. This Product is not an offer of securities in Indonesia. The securities referred to in this Product have not been registered with the Capital Market and Financial Institutions Supervisory Agency (BAPEPAM-LK) pursuant to relevant capital market laws and regulations, and may not be offered or sold within the territory of the Republic of Indonesia or to Indonesian citizens through a public offering or in circumstances which constitute an offer within the meaning of the Indonesian capital market laws and regulations. The Product is made available in Italy by Citigroup Global Markets Limited, which is authorised and regulated by Financial Services Authority. Foro Buonaparte 16, Milan, 20121, Italy. The Product is made available in Japan by Citigroup Global Markets Japan Inc. ("CGMJ"), which is regulated by Financial Services Agency, Securities and Exchange Surveillance Commission, Japan Securities Dealers Association, Tokyo Stock Exchange and Osaka Securities Exchange. Shin-Marunouchi Building, 1-5-1 Marunouchi, Chiyoda-ku, Tokyo 100-6520 Japan. If the Product was distributed by Nikko Cordial Securities Inc. it is being so distributed under license. In the event that an error is found in an CGMJ research report, a revised version will be posted on the Firm's Global Equities Online (GEO) website. If you have questions regarding GEO, please call (81 3) 6270-3019 for help. The Product is made available in Korea by Citigroup Global Markets Korea Securities Ltd., which is regulated by Financial Services Commission and the Financial Supervisory Service. Hungkuk Life Insurance Building, 226 Shinmunno 1-GA, Jongno-Gu, Seoul, 110-061. The Product is made available in Malaysia by Citigroup Global Markets Malaysia Sdn Bhd, which is regulated by Malaysia Securities Commission. Menara Citibank, 165 Jalan Ampang, Kuala Lumpur, 50450. The Product is made available in Mexico by Acciones y Valores Banamex, S.A. De C. V., Casa de Bolsa, Integrante del Grupo Financiero Banamex ("Accival") which is a wholly owned subsidiary of Citigroup Inc. and is regulated by Comision Nacional Bancaria y de Valores. Reforma 398, Col. Juarez, 06600 Mexico, D.F. In New Zealand the Product is made available through Citigroup Global Markets New Zealand Ltd. (Company Number 604457), a Participant of the New Zealand Exchange Limited and regulated by the New Zealand Securities Commission. Level 19, Mobile on the Park, 157 Lambton Quay, Wellington. The Product is made available in Pakistan by Citibank N.A. Pakistan branch, which is regulated by the State Bank of Pakistan and Securities Exchange Commission, Pakistan. AWT Plaza, 1.1. Chundrigar Road, P.O. Box 4889, Karachi-74200. The Product is made available in Poland by Dom Maklerski Banku Handlowego SA an indirect subsidiary of Citigroup Inc., which is regulated by Komisja Nadzoru Finansowego. Dom Maklerski Banku Handlowego S.A. ul. Chalubinskiego 8, 00-630 Warszawa. The Product is made available in the Russian Federation through ZAO Citibank, which is licensed to carry out banking activities in the Russian Federation in accordance with the general banking license issued by the Central Bank of the Russian Federation and brokerage activities in accordance with the license issued by the Federal Service for Financial Markets. Neither the Product nor any information contained in the Product shall be considered as advertising the securities mentioned in this report within the territory of the Russian Federation or outside the Russian Federation. The Product does not constitute an appraisal within the meaning of the Federal Law of the Russian Federation of 29 July 1998 No. 135-FZ (as amended) On Appraisal Activities in the Russian Federation. 8-10 Gasheka Street, 125047 Moscow. The Product is made available in Singapore through Citigroup Global Markets Singapore Pte. Ltd., a Capital Markets Services Licence holder, and regulated by Monetary Authority of Singapore. 1 Temasek Avenue, #39-02 Millenia Tower, Singapore 31 Citigroup Global Markets

Dish TV (DSTV.BO) 2 May 2010

039192. The Product is made available by The Citigroup Private Bank in Singapore through Citibank, N.A., Singapore branch, a licensed bank in Singapore that is regulated by Monetary Authority of Singapore. Citigroup Global Markets (Pty) Ltd. is incorporated in the Republic of South Africa (company registration number 2000/025866/07) and its registered office is at 145 West Street, Sandton, 2196, Saxonwold. Citigroup Global Markets (Pty) Ltd. is regulated by JSE Securities Exchange South Africa, South African Reserve Bank and the Financial Services Board. The investments and services contained herein are not available to private customers in South Africa. The Product is made available in Spain by Citigroup Global Markets Limited, which is authorised and regulated by Financial Services Authority. 29 Jose Ortega Y Gassef, 4th Floor, Madrid, 28006, Spain. The Product is made available in Taiwan through Citigroup Global Markets Taiwan Securities Company Ltd., which is regulated by Securities & Futures Bureau. No portion of the report may be reproduced or quoted in Taiwan by the press or any other person. No. 1, Songzhi Road, Taipei 110, Taiwan. The Product is made available in Thailand through Citicorp Securities (Thailand) Ltd., which is regulated by the Securities and Exchange Commission of Thailand. 18/F, 22/F and 29/F, 82 North Sathorn Road, Silom, Bangrak, Bangkok 10500, Thailand. The Product is made available in Turkey through Citibank AS which is regulated by Capital Markets Board. Tekfen Tower, Eski Buyukdere Caddesi # 209 Kat 2B, 23294 Levent, Istanbul, Turkey. In the U.A.E, these materials (the "Materials") are communicated by Citigroup Global Markets Limited, DIFC branch ("CGML"), an entity registered in the Dubai International Financial Center ("DIFC") and licensed and regulated by the Dubai Financial Services Authority ("DFSA" to Professional Clients and Market Counterparties only and should not be relied upon or distributed to Retail Clients. A distribution of the different CIRA ratings distribution, in percentage terms for Investments in each sector covered is made available on request. Financial products and/or services to which the Materials relate will only be made available to Professional Clients and Market Counterparties. The Product is made available in United Kingdom by Citigroup Global Markets Limited, which is authorised and regulated by Financial Services Authority. This material may relate to investments or services of a person outside of the UK or to other matters which are not regulated by the FSA and further details as to where this may be the case are available upon request in respect of this material. Citigroup Centre, Canada Square, Canary Wharf, London, E14 5LB. The Product is made available in United States by Citigroup Global Markets Inc, which is regulated by FINRA and the US Securities and Exchange Commission. 388 Greenwich Street, New York, NY 10013. Unless specified to the contrary, within EU Member States, the Product is made available by Citigroup Global Markets Limited, which is regulated by Financial Services Authority. Many European regulators require that a firm must establish, implement and make available a policy for managing conflicts of interest arising as a result of publication or distribution of investment research. The policy applicable to CIRA's Products can be found at www.citigroupgeo.com. Compensation of equity research analysts is determined by equity research management and Citigroup's senior management and is not linked to specific transactions or recommendations. The Product may have been distributed simultaneously, in multiple formats, to the Firm's worldwide institutional and retail customers. The Product is not to be construed as providing investment services in any jurisdiction where the provision of such services would not be permitted. Subject to the nature and contents of the Product, the investments described therein are subject to fluctuations in price and/or value and investors may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal or exceed the amount invested. Certain investments contained in the Product may have tax implications for private customers whereby levels and basis of taxation may be subject to change. If in doubt, investors should seek advice from a tax adviser. The Product does not purport to identify the nature of the specific market or other risks associated with a particular transaction. Advice in the Product is general and should not be construed as personal advice given it has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to their objectives, financial situation and needs. Prior to acquiring any financial product, it is the client's responsibility to obtain the relevant offer document for the product and consider it before making a decision as to whether to purchase the product. © 2010 Citigroup Global Markets Inc. Citi Investment Research & Analysis is a division and service mark of Citigroup Global Markets Inc. and its affiliates and is used and registered throughout the world. Citi and Citi with Arc Design are trademarks and service marks of Citigroup Inc and its affiliates and are used and registered throughout the world. All rights reserved. Any unauthorized use, duplication, redistribution or disclosure is prohibited by law and will result in prosecution. Where included in this report, MSCI sourced information is the exclusive property of Morgan Stanley Capital International Inc. (MSCI). Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated or used to create any financial products, including any indices. This information is provided on an "as is" basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI, Morgan Stanley Capital International and the MSCI indexes are services marks of MSCI and its affiliates. The information contained in the Product is intended solely for the recipient and may not be further distributed by the recipient. The Firm accepts no liability whatsoever for the actions of third parties. The Product may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the Product refers to website material of the Firm, the Firm has not reviewed the linked site. Equally, except to the extent to which the Product refers to website material of the Firm, the Firm takes no responsibility for, and makes no representations or warranties whatsoever as to, the data and information contained therein. Such address or hyperlink (including addresses or hyperlinks to website material of the Firm) is provided solely for your convenience and information and the content of the linked site does not in anyway form part of this document. Accessing such website or following such link through the Product or the website of the Firm shall be at your own risk and the Firm shall have no liability arising out of, or in connection with, any such referenced website. ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST

32 Citigroup Global Markets